The Reserve Bank of India (RBI) has been pulled deeper into the bad loan resolution process. The banking regulator is now fighting it out in the courts with Essar Steel, which has said that the RBI decision to refer the company to the National Company Law Tribunal for insolvency proceedings violates the principles of natural justice. Essar Steel is one of the 12 large companies that the central bank has asked lenders to move against.

This newspaper has been critical of the government decision to use RBI to settle individual bad loan cases rather than design general rules. This is all the more odd, given the fact that it is the government that owns the banks which have most of the bad loans in the system. And it’s also worth noting that the Gujarat high court has already rapped RBI on the knuckles for a badly worded press release on the matter.

It is quite possible that the Indian central bank could get dragged into more legal tangles as it tries to resolve individual loan accounts. That risk has not got enough attention.